Governments impose excise taxes on goods that have inelastic demand, such as cigarettes, more often than in other cases. Why?
What will be an ideal response?
Imposing an excise tax reduces the supply of the good, reducing equilibrium quantity and raising the price. If demand is elastic, taxes will tend to reduce quantity by a significant amount, and thus government tax revenues will be relatively small. However, if demand is inelastic, the reduction in quantity will be small, and government tax revenues will be higher. (Governments may also impose taxes to deter consumption, but this is likely to be ineffective if elasticity is low.)
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Use the following table to answer the next question.Money SupplyInterest RateGross Investment$200 billion0.2%$1 trillion$250 billion0.2%$1 trillion$300 billion0.2%$1 trillionWhich limitation for monetary policy is illustrated by the table?
A. crowding out B. pessimistic business expectations C. policy lags D. the liquidity trap
Is every product produced in the United States included in U.S. gross domestic product?
What will be an ideal response?
Suppose that Richard has just told you that he would not pay more than $100 dollars for one of his favorite baseball cards. You offer to give him $110 dollars for his card and he refuses. What consumer choice theory or effect explains this result?
A) the endowment effect B) bounded rationality C) bounded self-interest D) bounded will power
If the trade line that passes through the production point on the PPC has a slope that is shallower than the slope of the PPC at the same point, then
A) the country can get greater gains from trade if it moves production away from the vertical axis. B) the country can get greater gains from trade if it moves production toward the vertical axis. C) the country cannot improve on its gains from trade. D) There are no gains from trade in this example. E) There is not enough information to tell how it can improve its gains from trade.